Dipping under 100% on Firecalc?

[ERD50]

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Originally Posted by youbet Thank you for your consideration! Just don't call me Betty!

Well, between "Betty" and "youbet", no guarantees!

-ERD50

[Koolau]

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Originally Posted by ERD50 Well, between "Betty" and "youbet", no guarantees! -ERD50

Surely, you jest.

[Exchme]

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Originally Posted by daylatedollarshort Question for you - Let's assume Bob retired May of 2021 with a 30 year plan. Today Bob has $X and a 29 year plan. Bob hasn't withdrawn any money from his portfolio and all the other Firecalc parameters are left the same, no SS or pensions, except the time left to be retired is now 29 years. Mary wants to retire today, but she thinks she will only live for 29 years. She has $X dollars, the same as Bob now has. Does Bob has any better odds of portfolio success because he retired a year before Mary? Or should their odds of portfolio success now be the same? They both have $X and want to be retired for 29 years into the future. Bob's odds went to 86%. Should he stay retired? Mary's odds are 86%. Does she have enough to retire?

Let's agree that no method predicts the future, so no analysis done today can really tell us about our finances 30 years from now. Within the world of historical simulation, the issues you are bringing up have been discussed in the literature.

In 2020, Marwood and Minnen published a method they called the DMSWR (both authors initials were D.M.). The gist is you can ride any prior retirement path as long as you adjust duration accordingly, so Bob and Mary in your example are equal, which is obviously as it should be.

Also, since Bob was safe according to historical data at one point in time, he still is. That is, he only fails if a new worst case is in the process of being set; if the historical worst cases hold, he is still OK.

https://www.financialplanningassocia...drawdown-paths

The paper would be harder implement as it would require backing up to the previous peak and adjusting retirement duration, but it's a consistent framework that gets rid of the seeming logic problems.

[daylatedollarshort]

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Originally Posted by Exchme Let's agree that no method predicts the future, so no analysis done today can really tell us about our finances 30 years from now. Within the world of historical simulation, the issues you are bringing up have been discussed in the literature. In 2020, Marwood and Minnen published a method they called the DMSWR (both authors initials were D.M.). The gist is you can ride any prior retirement path as long as you adjust duration accordingly, so Bob and Mary in your example are equal, which is obviously as it should be. Also, since Bob was safe according to historical data at one point in time, he still is. That is, he only fails if a new worst case is in the process of being set; if the historical worst cases hold, he is still OK. https://www.financialplanningassocia...drawdown-paths The paper would be harder implement as it would require backing up to the previous peak and adjusting retirement duration, but it's a consistent framework that gets rid of the seeming logic problems.

Interesting article, but it refers a lot to the 4% rule which Bill Bengen himself keeps changing year to year - Father of 4% Rule Urges Caution, Cash as Market Risk Rises | ThinkAdvisor.

"I raised the rate to 4.7% a year or two ago based on my latest research at that time. Since then, circumstances in the market have become unique. My research has been based on studying rates of return and inflation. I couldn’t find anything that matched the situation we had coming into this year, with valuations at all-time highs and inflation threatening to pick up substantially. So I’ve suggested that [retirees] may want to be more conservative than my research had indicated was necessary."

Other financial experts are also questioning the 4% rule as being too aggressive in today's environment - https://www.azcentral.com/story/mone...orks/50251755/

"Bengen, who retired in 2013, suggests that given today’s unprecedented economic situation, retirees will need to cut back their spending and lower their withdrawal rate. A recent Morningstar study shows that the 4% withdrawal rate was too aggressive. Its research recommends a 3.3% starting withdrawal rate."

Interestingly, one can get a 3.3% SWR over 30 years on zero real return TIPS and I bonds.

[ERD50]

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Originally Posted by Koolau Quote: Originally Posted by ERD50 View Post Well, between "Betty" and "youbet", no guarantees! -ERD50 Surely, you jest.

Yes, but stop calling me "Shirley"!

I assume that's the response you were going for?

-ERD50

[REWahoo]

https://www.youtube.com/watch?v=KM2K7sV-K74

[ERD50]

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Originally Posted by daylatedollarshort Interesting article, but it refers a lot to the 4% rule which Bill Bengen himself keeps changing year to year - ... Other financial experts are also questioning the 4% rule as being too aggressive in today's environment - ... A recent Morningstar study shows that the 4% withdrawal rate was too aggressive. Its research recommends a 3.3% starting withdrawal rate." ...

Question for you - are you thinking that the fact that some high profile people who refer to these historical tools have changed their "SWR" number, somehow reflects poorly on the tool itself, or even invalidates it?

You keep bringing it up, and seem to have an ax to grind against these tools, so I wonder. Maybe you don't, but it comes across that way to some of us.

If so, please realize there is no connection at all. These people are coming to a conclusion based on what they think about the future, their own risk tolerance, or even human reaction to a downturn. They can do what they want, but that does not change the value of the tool in understanding how a portfolio would have fared in all the historic periods. The tool reports a number, what you do with it is your business, but doesn't change the value of the tool.

For me, I'm not comfortable with a less than 100% success rate, "4% guideline" be damned. I look at that and say - it shows, no ambiguity, that 4% have failed in ~ 5% of past scenarios. For me, no way am I going to retire knowing that my plan has failed in the past.

Yes, the future may be worse, but that's not knowable, and I've built in a little buffer on top. But that's me, not the tool. Someone else might feel good with a 50-50 historical chance of surviving on a much higher WR%. That's up to them, they might live the high life, but hopefully have a reasonable back-up plan.

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Originally Posted by daylatedollarshort ... Interestingly, one can get a 3.3% SWR over 30 years on zero real return TIPS and I bonds.

With zero chance of having anything left in year 31. But a 3.3% WR on a 75/25 has a very high historical chance of having money left, and a good chance of having a lot left. And of course, in an uncertain future that might be worse than the worst of the past, a chance of running out before year 30.

It's a choice for the individual.

I may have asked this before, but can one accumulate enough TIPS to cover their entire portfolio going out 30 years?

-ERD50

[corn18]

I'm with ERD50. Even though we are still on track for 100%, this year's losses have resulted in us trimming our spending. Not a lot. Basically cut out the $400 / mo we have been spending on doordash. A little change that makes a big difference over 40 years.

[daylatedollarshort]

ERD50, Did you read the article in the link my post responded to? I am not sure why you took my post out of context. The first sentence says it is "Building on Bengen’s famous 4 percent rule (Bengen 1994)...", so the usefulness of the 4% rule is pretty key to the entire article. The 4% rule is mentioned at least 18 times in the article body, plus there are more mentions in the references.

Clearly I am not the only one who has brought up the issues discussed in this thread, as that is what the entire article is about, and they don't mention daylatedollarshort in the article at all. They even use different names instead of Bob and Mary. They call the issue the "starting point paradox". Google it. It is an issue that exists whether I personally comment on it or not.

[ERD50]

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Originally Posted by daylatedollarshort ERD50, Did you read the article in the link my post responded to? I am not sure why you took my post out of context. The first sentence says it is "Building on Bengen’s famous 4 percent rule (Bengen 1994)...", so the usefulness of the 4% rule is pretty key to the entire article. The 4% rule is mentioned at least 18 times in the article body, plus there are more mentions in the references. Clearly I am not the only one who has brought up the issues discussed in this thread, as that is what the entire article is about, and they don't mention daylatedollarshort in the article at all, and even use different names instead of Bob and Mary. They call the issue the "starting point paradox". Google it. It is a an issue that exists whether I personally comment on it or not.

Actually no, I had not read the article, because it had nothing to do with my question to you. I was questioning your pointing out that "... the 4% rule which Bill Bengen himself keeps changing year to year - ...". As if him changing it (year to year?) reflects at all on the tool?

I just skimmed the article, but the "starting point paradox" is only an "apparent" paradox. It isn't a paradox at all once you understand how to read the data. It really doesn't matter how many people bring it up, it's not actually a paradox. The number of times it is brought up only reflects that is can be a little hard to get one's head around. It took me some effort to get there.

And from my skim, I think the authors point this out.

Maybe I'm just misunderstanding where you are coming from. It sounds to me like you are saying the tool contradicts itself, and is therefore of questionable value. But it really does not, once you understand it. It's value is exactly what it is and all it can be - to show how a given portfolio and spend pattern would have survived with the historical data it has.

-ERD50

[daylatedollarshort]

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Originally Posted by ERD50 Actually no, I had not read the article, because it had nothing to do with my question to you. I was questioning your pointing out that "... the 4% rule which Bill Bengen himself keeps changing year to year - ...". As if him changing it (year to year?) reflects at all on the tool? I just skimmed the article, but the "starting point paradox" is only an "apparent" paradox. It isn't a paradox at all once you understand how to read the data. It really doesn't matter how many people bring it up, it's not actually a paradox. The number of times it is brought up only reflects that is can be a little hard to get one's head around. It took me some effort to get there. And from my skim, I think the authors point this out. Maybe I'm just misunderstanding where you are coming from. It sounds to me like you are saying the tool contradicts itself, and is therefore of questionable value. But it really does not, once you understand it. It's value is exactly what it is and all it can be - to show how a given portfolio and spend pattern would have survived with the historical data it has. -ERD50

The authors defend the starting point paradox using the 4% rule to explain the paradox. But Bill Bengen himself has abandoned ship on the 4% rule. My comment was on the article, so it is illogical to ask why I brought up the 4% rule when I commented on an article based on the 4% rule. You say there is no starting point paradox and repeatedly point to my lack of understanding and try to personalize and demean my comments over what is simply a basic logic issue that others have noticed as well, and discussed without any input from me.

Google the starting point paradox. I didn't invent the paradox, I just noticed it and didn't know it had a name until now. It is discussed in numerous places online. You can agree or disagree with the apparent paradox as you want, but it would probably be more helpful if you stuck to math and logic reasons of why you agree or disagree, and left my motives, agendas and your perceptions of my lack of understanding out of it, because none of those starting point paradox discussions have anything to do with me personally. It is just something I have observed as well as others, like Kitces discusses it here - https://www.kitces.com/wp-content/up...t-May-2008.pdf

And, "The DMSWR (named after the authors’ initials, plus the acronym for safe withdrawal rate) addresses two commonly cited shortcomings of the 4 percent rule. First, it addresses the starting point paradox (Kitces 2008) by ensuring that initial retirement incomes are stable regardless of the precise retirement date and short-term fluctuations in the stock market." - https://www.financialplanningassocia...drawdown-paths

It would also be helpful if you are replying to a comment on an article, that you read the article before criticizing the comment.

[ERD50]

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Originally Posted by daylatedollarshort ... It would also be helpful if you are replying to a comment on an article, that you read the article before criticizing the comment.

I'll read the article later when I can give it my full attention. I don't expect it will change anything, for the reasons below...

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Originally Posted by daylatedollarshort The authors defend the starting point paradox using the 4% rule to explain the paradox. But Bill Bengen himself has abandoned ship on the 4% rule. ...

I don't care that "Bill Bengen himself has abandoned ship on the 4% rule". It's irrelevant to what I'm saying. He can do whatever he wants, even tell us we don't need to eat or drink and that we can live on air and sunshine - it doesn't change one thing about the report that FIRECalc (or equiv) spits out.

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Originally Posted by daylatedollarshort ... it would probably be more helpful if you stuck to math and logic reasons of why you agree or disagree, and left my motives, agendas and your perceptions of my lack of understanding out of it, ...

I am sticking to math and logic, but when I think you aren't getting it, I wonder if there is a motivation to pointing out Bill Bengan's position changes - he has nothing to do with any math/logic of a FIRECalc (or equiv) output.

The FIRECalc output either correctly reflects what would happen in history, or it doesn't. I think there have been enough people testing the math/logic for us to reasonably conclude it is reasonably accurate (there's been some questions about the exact timing/order of re-balancing, and the value of bonds on a re-balance, and such - I think these are fairly minor) in that regard.

How people interpret or misinterpret that is an entirely separate issue. Of course, it is an important one, as we don't want people to misinterpret it. In a more perfect world, the tool would be easily understood by all. But some/many things just aren't that simple. As I've said, I've struggled with this myself. One reason I engage in a debate like this is to refresh myself, it is a bit tricky. It's good practice to try to keep my mind sharp (OK, less dull?).

OK, many people have called out this 'paradox'. Fine. But just like the Monty Hall example mentioned earlier, just because people may have trouble seeing the answer, doesn't lead to that answer being any less correct.

Maybe you can restate exactly what your issue is. It may have got lost in some of this back-and-forth?

-ERD50

[daylatedollarshort]

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Originally Posted by ERD50 I am sticking to math and logic, but when I think you aren't getting it, I wonder if there is a motivation to pointing out Bill Bengan's position changes - he has nothing to do with any math/logic of a FIRECalc (or equiv) output.-ERD50

Per my earlier post, I didn't bring up Bill Bengen in this thread until someone posted an article on the starting point paradox that used Bill Bengen's 4% rule to explain the apparent paradox. Then you criticized my comment on the article for mentioning the 4% rule, without even clicking the link or reading the summary at the top of the article, where the first words of the article are literally "Building on Bengen’s famous 4 percent rule (Bengen 1994)".

The two people that wrote the article used the 4% rule to explain the paradox, which has been 80% of the topic of this entire thread. If you don't know what my point is, may I suggest you reread this thread from the beginning and the articles in the above links describing the starting point paradox. Also please note the DMSWR paper authors felt the subject deserved enough attention to debate the concept using math and logic examples, instead of just lobbing intelligence insults at those with opposing viewpoints.

Please note the authors' backgrounds:
"David Marwood is a staff software engineer, working on the future of machine learning at Google. He completed his MSc at the University of British Columbia in 1996 and has a strong interest in both investing and retirement planning.

David Minnen is a senior research scientist at Google, where he works on machine learning methods for image and video compression. He received his Ph.D. at the Georgia Institute of Technology in 2008 where his research on unsupervised time series analysis was funded by an NSF Graduate Research Fellowship."

[REWahoo]

https://www.youtube.com/watch?v=V2f-MZ2HRHQ

[ERD50]

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Originally Posted by REWahoo https://www.youtube.com/watch?v=V2f-MZ2HRHQ

Agreed. I hope to continue this a bit later, let things cool down a bit. There is value to this discussion, but it's just getting a bit off.

That's OK, it's a difficult thing to grasp, I still get lost sometimes.


BTW, DLDS, no insult was ever intended. Sorry if it came across that way. I will try again, later.


-ERD50

[SnowballCamper]

I googled, and this was the fourth hit

https://www.kitces.com/wp-content/up...t-May-2008.pdf

maybe it helps...

[ERD50]

I'm just going to dip my toe back in the water here, with a little side note/observation.

I was wondering about the use of the term 'paradox', and my use of 'apparent paradox'. So I went to the on-line dictionary. IMO, the word 'paradox' is a bit of a paradox in itself! And/or the term 'apparent paradox' may be redundant?

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par·a·dox noun a seemingly absurd or self-contradictory statement or proposition that when investigated or explained may prove to be well founded or true. "in a paradox, he has discovered that stepping back from his job has increased the rewards he gleans from it" Similar: contradiction contradiction in terms self-contradiction inconsistency incongruity anomaly conflict absurdity oddity enigma puzzle mystery conundrum oxymoron antinomy a statement or proposition that, despite sound (or apparently sound) reasoning from acceptable premises, leads to a conclusion that seems senseless, logically unacceptable, or self-contradictory. "a potentially serious conflict between quantum mechanics and the general theory of relativity known as the information paradox" a situation, person, or thing that combines contradictory features or qualities. "the mingling of deciduous trees with elements of desert flora forms a fascinating ecological paradox"

So it seems to me a 'paradox' is in the eye of the beholder. If person A understands why X leads to Z, it isn't a paradox to them. They would just say that person B doesn't understand. How far does this go, before you move from misunderstanding/paradox, to "that's just how it works, see!".

But person A may be able to understand why person B calls it a paradox, there may very well be something counter-intuitive to it, and a deeper understanding is needed to to resolve the paradox. At that point, it it still a 'paradox'?

Tree/forest/sound?

But that's all for now, just found that side bar kind of interesting. Have a good day!

-ERD50

[daylatedollarshort]

For those interested in the starting point paradox, and had not seen the prior discussions before on Bogleheads like I didn't, there are some pretty good discussions in their threads. They seem to cover the topic well and stick to the math and logic points, without the personal attacks that unfortunately took this thread repeatedly off track: https://www.bogleheads.org/forum/viewtopic.php?t=329473

[Exchme]

My worry about SWR techniques is not the fancy math, but that they tell us how things would have done in the US in the past. That may or may not have much to do with the future; our kids could mess it all up.

[daylatedollarshort]

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Originally Posted by Exchme My worry about SWR techniques is not the fancy math, but that they tell us how things would have done in the US in the past. That may or may not have much to do with the future; our kids could mess it all up.

One of the posts from the Bogleheads thread I found interesting is this one, in the thread Does the 4% withdrawal rate work for other countries (which is based on firecalc type past success / failure rates): "LH, check out the book ‘Triumph of the Optimists” by Dimson, Marsh, and Staunton. They show the returns and volatility for 15 or 16 developed world countries, including the US, 1900 – 2000. I ran a quick and dirty test using the Moneychimp.com monte carlo demonstrator, setting up a beginning $1000000 portfolio with a $40000 withdrawal. The US data gave an about 85% success rate (consistent with most US studies), with the lowest being Italy at about 13%, suggesting the US is the anomaly not the rule.

I’ve finally concluded that most recent withdrawal studies are just silliness, as authors churn through small data sets pretending to find complicated withdrawal rules. Add to that the consistently reported fact that most mutual fund investors receive below market returns (costs, dollar weighting) makes most study results optimistic. Hebeler seems to be the only one using realistic costs with past US history."

https://www.bogleheads.org/forum/vie...hp?f=10&t=9609